Question: Should I pay down debt rather than contribute money to my 401k?
I owe $25,000 on a home equity line of credit with 7% interest and another $20,000 on a car loan with 8% interest. I have been putting in the maximum (15%) of my paycheck into my 401k. Do you think it would make more sense to stop contributing to my 401k and pay off these loans faster?
You should look at your 401k returns and see if its performance is topping the interest that you are paying on those loans. If your 401k performance is higher than 7-8%, then it makes sense to continue contributing the maximum to your 401k. However, if your 401k is returning less than 7-8% per year, then you make want to scale down your contributions in order to pay down those loans. Scale down the 401k just enough in order to get a company match.
What do you think? Answer below!